Bad Bailout, Government Bully, and Nasty Coconuts

A few weeks ago the cry came from the White House that we were in huge economic crisis and that we needed that the answer was for the government to unclog the system with another bailout -- this time equalling the total of the previous recent bailouts to the tune of $700B.

If "the Man" says there is a problem that's one thing. That's their job. "Danger! Conditions are right for quick sand to form in the free market sand box!" It was said by some, but not in a way or a forum that it was heard or understood or reached most people. And if it had, would we have listened?

But "the Man" did more than declare danger a few weeks ago. Bloated government can't help but want to do more than it's rightful, just, and noble job. Now the government saw the opportunity to be the knight in shinning armor riding in to save the nation's economy, all the while utterly ignorant that it is actually a gangly, clumsy, oaf with a tin pot for a helmet clunking coconuts together for a steed.

I think many people saw the knight for the fool he is. Most Americans opposed the bailout before it passed. But the delusion of grandeur spread through congress. And it will continue to spread, because economic hardship is a vast and prevalent dragon throughout the land. After all, a knight in shining armor can hardly refuse to help more hapless citizenry in need. The delusion will grow and grow, we will pay and pay, until it can no longer support itself and then we will have real collapse and the "must avoid disaster" of the free market self-correcting will look mighty desirable. I pray our leaders look in the mirror sooner than that and wise up.

But I've digressed to dire predictions based on nothing but principles. (By the way, never trust a person who claims "I'm against this in principle, but in this crisis we have no choice but to blow off principle and do what feels good.").

How did our government's declaration to save the day prevent the free market from self-correcting? Because no one was exactly sure what the answer would be, only that government would overstep it's bounds. There was an answer coming. It's not our job to address it.

And the very mechanisms that could and should have helped get things moving again stood still because there was too much risk (of what the government would do) and not incentive (because the government might diminish any profit) to step into the breech, take a risk, and buy up the bad debt at basement prices. So no one wanted to buy. No one wanted to sell because the government was likely a better buyer.

It's the much the same thing that has happened with charity. The government takes care of it so we don't have to. We pay taxes and that takes care of everyone, right? Wrong. The principle of subsidiarity (via Catholic social teaching) states that ANY social entity that takes to itself roles and responsibilities which can be done by more local entities (closer to the family and the individual), undermines human dignity. Undermines human dignity. Wow. How much is our government doing that can be done by anyone else? A lot. That's a lot of trampling on human dignity.

Our current crisis began with a noble and ill advised sentiment -- that everyone should have a house. Government mandates made it so lending institutions had to give loans to people who couldn't afford them. This came to include not only poor people, but middle income people who thought they could turn and flip houses. That works when values keep growing. It's disaster when value shrinks. This was compounded by the Mark to Market rule which caused mortgage securities to appear valueless when they had substantial value. Bungling idiot, this knight in shining armor! And we reward such idiocy by giving our knight more responsibility and tools to mess with new and different aspects of our free market sandbox. Whose the greater idiot? The idiot himself, or the one who follows? 

We have to start calling him what he is. Bully! Get out! This is our sand box! You are just the maker and enforcer of the rules, not a player in the sand. Get out! And take these sand-encrusted coconuts with you!